Research
The recent literature on demand-system asset pricing estimates the slope of investors’ demand curves from static logit regressions, implying counterfactual experiments have constant impacts that do not revert over time. Using investors’ trades at different horizons, I provide reduced-form evidence that elasticities increase significantly in the long run. To capture these dynamics structurally, I propose a partial adjustment model differentiating between short- and long-run elasticities. I find that the price impact from counterfactuals is four times larger at quarterly horizons than in the long-run equilibrium. The model accounts for investor inertia, captures long-run reversal, and provides insights into return predictability.
Many active funds hold concentrated portfolios. Flow-driven trading pushes up the funds’ existing positions resulting in self-inflated returns. We show that when allocating capital across funds, investors are unable to identify whether realized returns are self-inflated or fundamental. Flows that chase self-inflated returns predict bubbles in ETFs and lead to a daily wealth reallocation of $500 Million from ETFs alone. We provide a simple regulatory reporting measure – fund illiquidity – which captures a fund’s potential for self-inflated returns.
Wall Street Journal: Hot Funds and the Curse of Self-Inflated Fund Returns
Morningstar: Beware of the 'Ponzi funds' that are hiding in plain sight
Yahoo Finance: ETF Ponzi funds: How market bubbles are born every day
R&R at Journal of Finance
The returns to sustainable investing are strongly driven by price pressure from flows towards sustainable funds, causing high realized returns that do not reflect high expected returns. In the absence of flows, sustainable funds would have underperformed the market from 2017 to 2022.
Winner of the Swiss Finance Institute Best Paper Doctoral Award 2022
Media Coverage: Bloomberg (a), Bloomberg (b), Risk.net, SEC
We quantify the impact of Robinhood traders on the US stock market in a structural model. Robinhood traders account for 18% of the variation in stock returns in the second quarter of 2020. Without the surge in retail trading activity the aggregate market capitalization of small stocks would have been 20% lower.
Winner of the Swiss Finance Institute Best Paper Doctoral Award 2021
Media Coverage: The Wall Street Journal, Morningstar, Bloomberg, Risk.net, Handelsblatt (a) , Handelsblatt (b), Market Watch, Institutional Money
The Equilibrium Flow-Return Relation (joint with Antoine Didisheim, Andreas Schrimpf and Semyon Malamud)
Returns and flows exhibit a high contemporaneous correlation. How can we identify whether returns are driven by flows or flows simply respond to contemporaneous returns? We develop a simple equilibrium model that disentangles the two channels and leads to an explicit bias-correction formula.
Portfolio Holdings and the Origins of Demand Elasticities (joint with Lorenzo Bretscher and Giorgio Ottonello)
We study the use of holdings data across different asset classes more broadly. We document a set of stylized facts and show that the inference of structural parameters (such as demand elasticities) critically depends on the asset class-specific definitions of demand, supply and price and their joint distribution.